May 1, 2013: Volume 5, Number 5

From the Current Issue

South Korea has been attracting a lot of attention in recent years. Several conferences aimed at South Korean institutional investors have been offered by industry associations and commercial conference providers on a yearly basis. Unlike in other Asian economies, the main reason there is so much interest in South Korea is not the Korean domestic market, but rather the appetite of Korean pension funds and other institutional investors for overseas real estate investments. Like their brethren in other countries, Korean investors are having a hard time in the current low interest rate environment finding higher yields and profitable investments, which they need to meet their current and future liabilities for their often-underfunded pension schemes.

Ever-growing domestic consumption in many parts of Asia has been a boon to the region’s retail and logistics sectors. And overall strength in the Asian logistics space has encouraged recent high-profile transactions and development ventures by some of the largest players.

Asia Pacific listed real estate companies were up slightly in March, posting returns of 0.3 percent, according to SNL Financial, with regional returns denominated back to US dollars and country returns in local currency.

I recently wrote a short column on the effects of subdivision of commercial property in Asia Pacific, in particular Hong Kong and Singapore. It received considerable comment and feedback in the region, notably from research heads in large real estate funds. I am grateful for their comments and have refined the arguments presented here, along with data not present in the original note.

Today, the phrase “emerging market” is almost synonymous with the acronym “BRIC”. Conceived by Goldman Sachs’s Jim O’Neill in his 2001 paper, titled Building Better Global Economic BRICs, the economies of Brazil, Russia, India and China have grown substantially during the past decade from the standpoints of GDP and investment. While their performance has validated O’Neill’s thesis, it is not necessarily given that these four countries offer the best emerging market risk-adjusted returns in today’s environment.

The global financial crisis had profound implications for real estate, with trillions of dollars being wiped off the asset class and serious questions being raised as to the credibility of real estate as a significant element of institutional portfolios. Since that time, most real estate markets have experienced a recovery and, unlike other crises such as the early 1990s or the 1970s, investors have continued to demand exposure to the asset class.